Tech Law Journal Daily E-Mail Alert
April 20, 2001, 8:00 AM ET, Alert No. 170.
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FCC Meeting
4/19. The FCC held a public meeting Thursday morning to address three items. First, it adopted a Notice of Proposed Rulemaking to explore ways of reforming existing intercarrier compensation rules. Second, it approved amendments to its rules, known as the Dual Network Rule, to allow the major networks to acquire UPN an WB. Third, it heard a report on, and discussed the status of, the transition from analog to digital TV.
Dual Network Rule
4/19. The FCC voted at its public meeting to adopt a Report and Order that will amend its rules (at § 73.658(g)) to permit one of the four major TV networks (ABC, CBS, Fox and NBC) to own, operate, maintain or control the UPN and/or the WB TV network. Commissioner Furchtgott- Roth said he would have gone further and eliminated all FCC ownership restrictions; he reasoned that if there were a competition problem, the FTC or Antitrust Division could handle it. Commissioner Tristani dissented, lamenting that the rule will limit "broadcast diversity". See, FCC release and written statements of Tristani, Powell, and Ness. (MM Docket No. 00-108.) 
4/19. The Children's Online Privacy Protection Act (COPPA), which was passed at the end of the 105th Congress in 1998, prohibits the collection of personally identifying information of children under 13 by web site operators without parental consent. The COPPA, and the implementing rules, went into affect on April 21, 2000. Several parties noted its first anniversary.
4/19. The Center for Media Education released a report [PDF] titled "COPPA: The First Year: A Survey of Sites." It found that "COPPA has brought about significant changes in Web sites' business practices in data collection. A number of promising creative approaches illustrated how companies can adapt to the rules without undermining the interactive personalized features of the Internet. Commercial Web sites can still provide customized experiences for children and learn more about their audience, without compromising children's privacy." However, it also found that "the industry is clearly not doing all it can to comply with the new privacy provisions, and in some cases, may be violating both the spirit and letter of the law."
4/19. The FTC approved the Entertainment Software Rating Board (ESRB) as a "safe harbor" program under the terms of the Children's Online Privacy Protection Act (COPPA). See, FTC release and ESRB release.
4/19. The FTC also filed three complaints in U.S. District Courts alleging violations of the COPPA. The FTC also simultaneously settled all three actions. Under the terms of the settlements, the offending web site operators will pay fines, delete illegally obtained information, and comply with the COPPA in the future. See,
 • Complaint [PDF] and Consent Decree [PDF] in US v. Looksmart (EDVa).
 • Complaint [PDF] and Consent Decree [PDF] in US v. Monach Services (DMd).
 • Complaint [PDF] and Consent Decree [PDF] in US v. (EDVa).
4/19. The Federal Election Commission approved a draft advisory opinion regarding Morgan Stanley Dean Witter's plans to use a web site to authorize payroll deductions for political actions committees. MSDW submitted a Request for Advisory Opinion [PDF] requesting an opinion that it is permissible, pursuant to the E-SIGN Act, to use electronic signatures to authorize payroll deductions for the MSDW political action committee. The draft advisory opinion permits the activity, but does not rely upon the E-SIGN Act. The Commission approved the draft with little discussion by a vote of 6 to 0.
Insider Trading
4/16. The SEC filed a civil complaint in U.S. District Court (NDCal) against Malcolm Wittenberg alleging violation of federal securities laws in connection with allegations that he traded in stock on the basis of material non public information. He simultaneously consented, without admitting or denying the allegations in the complaint, to the entry of a permanent injunction against future violations of §  10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and to pay a total of $29,224.67, including $14,000 in disgorgement of trading profits, $1,224.67 in prejudgment interest and a civil penalty of $14,000. See, SEC release. On April 16 a grand jury of the U.S. District Court (NDCal) returned a two count indictment [PDF] against Wittenberg.
New Documents
RIAA: opposition to Napster's petition for a rehearing en banc, 4/19 (PDF, RIAA).
CME: report on COPPA, 4/19 (PDF, CME).
Unger: speech re analyst independence, 4/19 (HTML, SEC).
Reciprocal Compensation
4/19. The FCC took action on the reciprocal compensation issue in two related matters. First, it announced that it has adopted rules setting prices for intercarrier compensation for ISP bound traffic. Second, it announced the commencement of a broader NPRM relating to intercarrier compensation. However, the FCC released neither its price fixing rule nor its NPRM, and hence, left uncertain what it is doing.
Background: § 251(b)(5) of the 1996 Telecom Act provides that local phone companies must compensate each other for handling each other's local calls. A telephone company pays a second telephone company for each local call the second company completes to one of its customers. For example, if a person whose local phone company is the incumbent local exchange carrier (ILEC) makes a local phone call to another person whose local phone company is a competitive local exchange carrier (CLEC), the CLEC is entitled to compensation from the ILEC for completing the call. The same is the case if the call originates with the CLEC and completes with the ILEC. Hence, it is called "reciprocal compensation" in the statute. However, ILECs, such as BellSouth, Verizon, and SBC, now complain that some CLECs are abusing the system by concentrating on serving ISPs, but not residential customers, and making the money off of reciprocal compensation payments that are not in fact reciprocal, and involve little cost to provide. They want to end reciprocal compensation for ISP bound traffic. Others argue that doing so would harm competition, and could result in Internet access charges.
FCC Commences NPRM: The FCC adopted, but did not release, a Notice of Proposed Rule Making (NPRM) regarding intercarrier compensation generally. The Commission adopted the NPRM Wednesday night, and again at the Commission's public meeting Thursday morning. The Commission did not release the NPRM, explain its content, or quote from it. However, Commissioner Furchtgott-Roth quoted from the works of Milton Friedman and Adam Smith. Dorothy Attwood, Chief of the Common Carrier Bureau, and other FCC staff, held a press conference immediately after the Commission meeting to discuss the NPRM. However, they too refused to elaborate on the contents of the NPRM. The FCC merely issued a short release. FCC Commissioners and staff did say that they were interested in receiving comment on "bill and keep" proposals. (Re: Notice of Proposed Rulemaking, Developing a Unified Intercarrier Compensation Regime, CC Docket No. 01-92.)
Chairman Powell praised the NPRM at the meeting. He called it "extraordinarily ambitious undertaking" that is "long overdue". He added that "in a competitive environment, and an environment in which new technical innovative services are being provided, that the regulatory regime itself risks distorting the efficient development of that market because there are such different compensation and regulatory regimes, depending on the nature of your service." See, also written statements by Powell, Ness and Furchtgott-Roth.
FCC Sets Prices: The FCC also adopted, but did not release, new rules setting intercarrier compensation rates for telecommunications traffic delivered to ISPs. The FCC issued a  release that states that "The Commission concluded that telecommunications traffic delivered to an ISP is interstate access traffic, specifically "information access," thus not subject to reciprocal compensation. Additionally, rather than immediately eliminate the current system, which has created opportunities for regulatory arbitrage and distorted market incentives, the Commission established a transitional cost recovery mechanism for the exchange of this traffic." The release also states the prices fixed by the FCC: "For the first six months following the effective date of this Order, intercarrier compensation of ISP-bound traffic will be capped at a rate of $.0015/ minute-of-use (mou). For the 18 months thereafter, the rate will be capped at $.0010/mou. Thereafter, the rate will be capped at $.0007/mou." (CC Docket Nos. 96-98 and 99-68, Order on Remand and Report and Order, FCC 01-131.)
Harold Furchtgott-Roth criticized price setting by government agencies. He said that "deregulation is not about government setting prices. It is not about government setting up mechanisms or specific types of intercarrier arrangements -- intercarrier compensation arrangements. It is not about mandating bill and keep. It is not about mandating any type of price ..." He wants to "get the government out of the price setting business." He also noted that the North Korean and Cuban governments set prices. He also released a written dissent afterwards which argued that the price rule is without legal basis. He predicted that "The result of the Commission's order will be another round of litigation, and, in all likelihood, this issue will be back at the agency in another couple of years."
Industry Reaction: Bob Blau of BellSouth praised the FCC for limiting reciprocal compensation payments. "We congratulate the commission on this important first step out of the thicket that has allowed one group of companies to milk cash from BellSouth and others, for doing almost nothing but watching the internet one-way traffic flow. ... But, the fact of the matter is today's ruling still leaves incumbents subsidizing their competitors. The order is only a partial solution. BellSouth will participate vigorously in the next round of this debate, hoping to move to a bill and keep regime as quickly as possible." Similarly, Gary Lytle, President of the USTA, a group which represents ILECs, stated that "We are encouraged by today's announcement and look forward to reviewing the entire order upon its release. It's time for the FCC to close the reciprocal compensation loophole for good." See, release.
Russell Frisby, President of CompTel, praised the FCC for not eliminating reciprocal compensation payments. "Remember, the Bells were the ones who pushed so hard to get reciprocal compensation into the Act.  And now they want to penalize competitors for benefiting from it. All the competitors did was bring better prices and services to consumers when the Bells had no interest in it." He added that "The Bell monopolies have been trying every which way they can to wriggle out of the Telecommunications Act and its pro-competitive intent since the beginning. Reciprocal compensation is just one of those avenues. And the FCC's decision makes it clear that road is closed." See, release.
Commissioners encouraged people to read two working papers published by the FCC's Office of Plans and Policy. One is Bill and Keep at the Central Office as the Efficient Interconnection Regime [PDF], by Patrick DeGraba. It proposes "a unified approach to interconnection pricing called Central Office Bill and Keep ("COBAK"), which provides that a called party's carrier cannot charge an interconnecting carrier to terminate a call. Rather, each carrier recovers the cost of the loop and local switch from its own end-user customers). The second paper is A Competitively Neutral Approach to Network Interconnection [PDF], by Jay Atkinson and Christopher Barnekov. It proposes "a default bill and keep solution under which carriers split equally those costs that are solely incremental to interconnection, and recover all remaining costs from their own customers." For further background, see testimony of former FCC Common Carrier Bureau Chief Larry Strickling to the House Commerce Committee on June 22, 2000, and Bell Atlantic v. FCC, 206 F.3d 1 (D.C. Cir 2000).
4/19. The Cato Institute hosted a book forum titled "Are the Crypto Wars Over? Privacy, Digital Security and the Future of Encryption Policy." Steven Levy discussed his book, Crypto: How the Code Rebels Beat the Government -- Saving Privacy in the Digital Age. Bruce Schneier discussed his book, Secrets and Lies: Digital Security in a Networked World. Levy stated that encryption export regulations were significantly relaxed over a year ago, but that it has not resulted in widespread use of encryption products.
Schneier said that "I believe we won the crypto war, but it was the wrong war." He said that most of the problems faced today, such as distributed denial of service attacks, web site defacements, unauthorized access, theft of data, and viruses, cannot be solved by cryptography. He elaborated that encryption protects data in motion, but today's problem's are primarily the security of data when it is sitting still on hard drives. There is no cryptological or other technological fix to these problems. He concluded that the answer lies in obtaining a lawful society, and this entails adoption of criminal statutes, and government prosecutions. "The way we will get security on the Internet is through convictions."
Schneier also stated that encryption can not provide a solution to the copyright infringement problems of record and movie companies. He said that audio and video can be encrypted, but ultimately, "the device that plays it must be able to decrypt it. If you are going to attack these systems, you don't attack the cryptography. You just grab the data after it has been decrypted."
Napster News
4/19. The record companies plaintiff and appellees filed their opposition to Napster's petition for a rehearing en banc with the U.S. Court of Appeals for the 9th Circuit. See also, letter brief on procedural issues, and response to Napster's motions for judicial notice, and to file supplemental brief.
9:30 AM. The U.S. Court of Appeals (DC Cir) will hear oral argument in National Public Radio v. FCC, Appeal No. 00-1246. Judges Ginsburg, Randolph and Tatel will preside.
10:00 AM. The FCC's WRC-03 Advisory Committee will hold a meeting to continue preparations for the 2003 World Radiocommunication Conference. The Advisory Committee will consider any preliminary views and/or proposals introduced by the Advisory Committee's Informal Working Groups. Location: FCC, 445 12th Street, SW, Room TW-C305, Washington DC.
12:00 NOON. Tom Sugrue, Chief of the FCC's Wireless Telecommunications Bureau, will address the Land Mobile Communications Council Annual Meeting. Location: Loews L’Enfant Plaza Hotel, Washington DC.
Deadline to submit written testimony for hearing to be held by the USTR on further actions against Ukraine for its denial of adequate protection of intellectual property rights. On March 12, the USTR designated Ukraine as a "Priority Foreign Country" under the "Special 301" program. A public hearing will be held on April 27, 2001. See, notice in the Federal Register, April 6, 2001, Vol. 66, No. 67, at Pages 18346 - 18348. See also, USTR release of March 13. 
More News
4/19. President Bush announced his intent to nominate Allen Johnson to be Chief Agriculture Negotiator for the Office of the USTR. He is currently President of the National Oilseed Processors Association. See, release.
4/19. SEC Acting Chairman Laura Unger gave a speech at the Northwestern University School of Law in
Evanston, Illinois, titled "How Can Analysts Maintain Their Independence?"
4/19. Convergent Communications and its subsidiary Convergent Communications Services filed a Chapter 11 bankruptcy petition in U.S. Bankruptcy Court. See, release.
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